counter point to inflation:
the relative external value of the dollar is way overrated as an influence on all this imo. note in this context that the largest trade imbalance is with China, the currency of which is pegged to the dollar. so there won't be any import inflation (and as a matter of fact, there isn't any).
'bailed out Japan's currency'??? that's not what happened imo. what happened was that the yen carry trade went belly-up....it had become a too large one-sided bet.
what gold is telling us imo are two things: 1. the Fed IS printing a lot of money in its misguided fight 'against deflation'. 2. it's possible that it will fail, and a wave of defaults will ensue. in that case, gold will be the only refuge, so people are already buying some as a hedge.
3. IF the Fed wins this battle (which is the inflation bet), gold will be a good hedge as well.
note that last financial year, Japan's narrow money supply expanded at 35% annualized. at one point it actually expanded at a 45% rate. at the same time, Japan recorded its worst year of price deflation in 13 years, and bank credit fell for the 6th consecutive year.
and THAT is the major thing to focus on imo: the CBs can print all they want, once they run out of willing borrowers, the money just sits there doing nothing. meanwhile, debt defaults keep destroying money that was issued earlier in the game.
note: i don't think we'll get a deflation rivalling the 30's, i.e. 10% falls in CPI in one year. but i'm expecting something along Japanese lines...steady deterioration from the current 50-year low in core CPI inflation of 1% to something like 0.5% next year, and then a decline below the zero level...aggregate declines of 1 - 3% at worst per year. |
